Application Policy

DATE: June 9, 1998
SUBJECT: Conflict of Interest with regard to Outside Consultants


This application policy addresses the issue of "conflict of interest" with regard to the use of outside consultants by the Department. This policy replaces the Application Policy SR&ED 95-04 dated September 19, 1995.

Policy Statement

The Department uses outside consultants to advise on the eligibility of work relating to claims for scientific research and experimental development (SR&ED) tax credits. Where a consultant works for both taxpayers and the Department, specifically on work related to SR&ED tax credits, he is in a conflict of interest situation.

Consultants shall not be utilized in situations which create a conflict of interest or a perception of a conflict of interest.

Because of the commercially sensitive nature of the information provided by taxpayers in their SR&ED claims, no person having any past or existing conflict of interest should have access to this information. Typical situations in which a conflict of interest may arise are those where a person:

  1. Deals at non arm's length with the taxpayer (for example, a social relationship with the owner of the company).
  2. Has any existing or potential pecuniary interest in the taxpayer's affairs.
  3. Has any past, existing or potential interest regarding the utilization of the taxpayer's research or intellectual property.
  4. Is in the same business (i.e. in direct competition) as the taxpayer.
  5. Could use, in his own business, the information he would obtain from the taxpayer.
  6. Has previously worked as an employee or a consultant for the taxpayer.

Consultants are required to declare any conflict of interest before reviewing a claim.

Aside from the normal situations that create conflict of interest, a real or perceived conflict of interest could occur when income tax advice is offered to both the Department and to taxpayers by the same consultant. If the Department used this consultant, it might be perceived as enhancing the acceptance of taxpayers' claims prepared by the consultant. It could jeopardize the integrity of the Department as not being impartial and objective.

A consultant providing advice to taxpayers with regard to the SR&ED Program or preparing SR&ED claims would normally be considered to be in a conflict of interest situation.

However, it is important to distinguish between consultants who provide tax advice and consultants who work in their field of expertise. In fact, it should be noted that the use of highly qualified experts who do provide technologically based advice to others helps to demonstrate their expertise and neutrality in situations of litigation. Such work would normally not constitute a conflict of interest.

A copy of the consultant's curriculum vitae (CV) should be shown to the taxpayer upon request or if there is concern regarding conflict of interest, before the review begins. If the taxpayer can demonstrate that this person is in a real or potential conflict of interest, another consultant should be assigned to the file.

Where questions arise relating to the use of consultants, and the possibility of a problem exists, the Senior Science Advisor in Headquarters should be consulted.

Original signed by
Jim Millen
Director, Specialized Compliance Enhancement Division

Issued by: Tax Incentive Audit Section and Scientific Research Section

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